Legislature(1993 - 1994)
02/03/1993 09:06 AM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR LEMAN introduced SB l (RETIREMENT INCENTIVE PROGRAM) and SB 10 (RETIREMENT INCENTIVE PROGRAM) to be up for consideration. Number 420 SENATOR DUNCAN, prime sponsor of SB l, testified that the state had two previous retirement incentive programs in 1986 and 1989. The 1986 program saved approximately $73 million dollars in personal services costs, with approximately 2,300 employees retired under that program. The 1989 program resulted in a savings of $23 million dollars with the retirement of about 1,800 employees. Last year when the legislation was introduced and passed by the legislature, it was estimated there were about 10,600 employees eligible for the retirement incentive program. About 20 to 30 percent of those eligible have retired. It was estimated that at that 2,000 - 3,000 might actually participate in a retirement incentive program. He had no reason to believe that number has decreased, in fact, it probably has increased. To qualify, an employee must be within three years of early or normal retirement. The increased benefit would vary depending on each individual's length of service, their age and which retirement system they are participating in. The personal services savings required by the program will again be calculated over a five year period. Letters are on file in support of the program, Senator Duncan said, from such places as the Anchorage School District and the Cities of North Pole, Hoonah, Wrangell, Kenai, Ketchikan, Juneau, etc. He said there is great support for the program. Number 450 SENATOR DUNCAN thought the most compelling facets of the program really are the economic benefits it brings to the state, not just to state government, but to school districts, other governmental entities, and municipal governments. He said that the audits clearly point out there is a personal services savings. In a period of tightening budgets and declining revenues an early retirement program means fewer layoffs. It's a more humane and a more rational way of reducing government. Studies indicate it has not negatively impacted the retirement system, because it's a fully funded, sound program. It's a management tool that should be available. Even if there are not going to be massive layoffs due to an economic downturn, SENATOR DUNCAN said the stated goal of this administration and the majority of this legislature is to reduce government expenditures and reduce personal services cost. Number 500 Furthermore, there's nothing mandated in this program other than that we make the program available for managers. TAPE 93-7, SIDE B Number 560 SHELBY STASTNY, Director, Office of Budget and Management, said the administration's position on SB 1 and SB 10 is not popular, and it was not taken lightly. They believe it is the appropriate position, however. They believe the retirement incentive programs work very effectively when there are large numbers of layoffs required. Many private industries and governments have used it as a tool when significant layoffs are necessary. MR. STASTNY said one of the difficulties the administration has with a series of retirement incentive programs is that they lose their effectiveness. They begin to have the opposite effects for which they were intended. As retirement incentive programs become a regular occurrence, it is very difficult for a person to retire normally. Although a person does, as Senator Duncan said, pay into the retirement program for their share of the actual cost, the fact remains that it does give them an opportunity to participate in the retirement program for an extended period of time. If it's on the books as a tool, then it's in the back of everybody's head that maybe they ought to wait around for it and lobby the administration to make it happen. Number 575 MR. STASTNY said the administration believes that the cost savings are not there unless there are large numbers of layoffs, and they may not necessarily be there then. The average amount saved by the state in the last RIP program was $8,000 per employee, more or less. The difficulty in the calculation comes with the number of people who would have retired anyway. $8,000 is a skinny margin as far as savings go. It doesn't take many of those people who would have retired anyway to wipe out the $8,000 average per employee savings. His responsibility as the Director of the Office of Management and Budget is to make sure the state is spending money appropriately and the programs we enter into make good economic sense. In order for RIP programs to save a significant amount of money, a large number of the positions need to be held vacant which could be written into the way the RIP is administered by the state. The last point is the drain it has on good experienced state employees at a time when our revenue projections are going down. It seems that we ought to be working to hang on the most experienced employees rather than encouraging those people to leave. We believe that at this particular point in our history it doesn't make good sense to enact these bills, MR. STASTNY said. SENATOR DUNCAN said a person has to decide if they will retire by a certain date, according to his legislation. For example, state employees have an application period of three months. Participation is not mandatory. It is a management decision. This is a management tool which should be available. SENATOR DUNCAN asked Mr. Stastny if the Governor's FY '94 budget took into account inflationary increases, cost of living increases for contracts, and built in increases for education funding etc.? Or were agencies being asked to absorb those monies? MR. STASTNY answered that agencies are asked to absorb significant amounts of money, yes. SENATOR DUNCAN asked if there were major reorganizations going on in state government that could impact a number of positions? MR. STASTNY answered that there was some reorganization being planned, but whether they will entail significant reductions, he could not answer that for sure. SENATOR DUNCAN said that rumors are, for example, DOTPF design and construction in southeast could lose ten positions. SENATOR DUNCAN asked if there was any concern in the administration that oil prices might continue to decline. MR. STASTNY answered obviously there is always that concern. SENATOR DUNCAN said that all those things concern all of us and you should have a management tool available to address those situations. MR. STASTNY said he understood Senator Duncan's concern. SENATOR TAYLOR said he could understand the tough manager argument and also appreciated the difficulty a manager would have taking out a crystal ball to try and determine what would happen in the future. SENATOR TAYLOR asked if once the department makes a decision to participate, do they have an idea how many people will actually take advantage of the program. SENATOR DUNCAN answered that the decision is always in management's hands. The first decision to be made is will state government participate at all. Second, will the Department of Administration participate. Third, of the 200 - 400 people eligible in administration, which of them will be allowed to participate. SENATOR TAYLOR asked, if management would have the authority to discriminate among the employees once they have opted. SENATOR DUNCAN answered that they had in the past. Number 910 BARRY HAIGHT, Fairbanks fire fighter, representing a group of Fairbanks Public Safety employees, supported SB 1, because he believed the Retirement Incentive Program is an effective management tool to cut costs and reduce government in times of declining revenues. He said the City of Fairbanks and its employees have participated in two previous programs and it had worked well saving 3/4 of a million dollars in the 1989 program. The City has agreed with its fire fighters to participate in any future early retirement programs. SENATOR TAYLOR asked if the program they were currently operating under was a twenty-year and out program and was there a five-year buy-in of previous military time? MR. HAIGHT answered the program was twenty-years and out. There was also a buy-in for military time. Number 860 JIM PRESTON, President-elect of the Juneau Education Association, and teacher at the local high school, stated as an employee of the Juneau School District, he was not eligible under the proposal to retire. If the early retirement program would not have been vetoed last year, we could have saved in our own district one and a half million dollars, and that's out of a $35 million dollar budget. Another advantage to using early retirement is that by replacing a retiring teacher with a less expensive younger teacher fresh from the university with new ideas certainly would increase the chances for restructuring to occur. Number 835 BOB DEITRICK, President of the Juneau Education Association, and teacher at the Harborview Elementary School, supported SB 1. The district is at a point where the budget is being reviewed for next year. There is a shortfall in next year's budget. Fortunately, the School Board held some money back this year for carry-over because of the budget shortfall. However, Juneau is looking at a two percent cut in the school district's budget. In another year, we are looking at a greater deficit in our budget. Layoffs will occur in the Juneau School District if we don't have some way of cutting back our expenses. The local economy will benefit by the passage of this bill by keeping people in the city and in the state. In the education business, you cannot cut positions and you cannot cut classrooms. If you cut classroom positions, you increase class size. For the benefit of the kids, we need passage of this bill. Number 770 MR. DEITRICK said we need to have an avenue to maintain an equitable program to deliver services to kids in the classroom. MIKE HAROLD, Juneau Education Association and a teacher at the high school, said most of the teachers (120 to 160) are eligible under this program to retire. In the past two RIP's 70 teachers retired at a savings to the district of $1,500,000. Many teachers stayed and continued teaching. MR. HAROLD said he was eligible under this particular program and probably would elect to take it. Number 730 BILL KELDER, aide to Senator Kerttula, testified that because SB 1 and SB 10 are virtually identical, except for the windows of opportunity, and SB 1 was introduced earlier by Senator Duncan that he would respectfully request that action on SB 10 be deferred at this time. Senator Kerttula is not asking that the bill be withdrawn, just held in abeyance at the chairman's desire. MR. KELDER said it was encouraging to hear Mr. Stastny testify that he didn't see imminent massive layoffs coming, but he may be wrong and Senator Kerttula thought this would be a very valuable tool to have in place. SENATOR LEMAN said he would hold SB 1 for further testimony.
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